McAuliffe pitches closing budget gap with online sales tax collection

Virginia would force certain out-of-state online retailers to collect sales taxes, and cut state funding for public universities and colleges by 5 percent to help balance the budget under a proposal outlined Friday by Gov. Terry McAuliffe.

Recent improvements in Virginia's economy have brought the budget gap down from an estimated $1.5 billion this summer to about $1.26 billion, the Democrat told a joint session of the General Assembly's money committees. But lawmakers will have to find additional revenue and approve more spending cuts when they return to Richmond in January.

"The spending plan I am submitting for your consideration is balanced, fiscally conservative and in-keeping with our Commonwealth's long tradition of financial prudence," McAuliffe said. "It closes our revenue shortfall while investing in strategic priorities that will contribute to our ongoing economic growth."

Here's a look at the governor's plan and what's next:

— GENERATING REVENUE: McAuliffe wants to require out-of-state retailers with facilities in the state to collect taxes from Virginia residents — a move he says will put $12.56 million into the state's general fund beginning in fiscal year 2018. Amazon has been collecting sales taxes in Virginia since 2013 when former Gov. Bob McDonnell struck a deal with the company. McAuliffe also is proposing to slow the rollback of a budget-balancing gimmick that requires some merchants to pay early estimated sales taxes and recommending a "tax amnesty program" during fiscal year 2018 that would waive penalties and some interest for individuals and businesses that owe back taxes. McAuliffe says those two proposals will bring in more than $107 million.

— FUNDING CUTS: Virginia's public colleges and universities would see a 5 percent cut in state funding, which is lower than the 7.5 percent reduction McAuliffe's administration had warned they might get. McAuliffe's administration says money for financial aid won't be included in the cuts. Several state agencies would have to slash spending by 7.5 percent, but K-12 schools, Virginia State Police, the Department of Behavioral Health and Developmental Services would be exempt, McAuliffe said.

— NEW SPENDING: McAuliffe is proposing $31.7 million in new funds to bolster mental health care and substance abuse treatment. The money will go toward providing more people with same-day mental health assessments and expanding a pilot project aimed at improving mental health treatment in jails, among other things. McAuliffe's budget proposal also includes a 1.5 percent one-time bonus for state workers and teachers next year. State employees were supposed to get a 3 percent raise and teachers and certain local workers were supposed to get a 2 percent pay boost under the budget passed by lawmakers last session, but those plans were scrapped due to the state's budget woes.

— MEDICAID EXPANSION: McAuliffe's budget plan doesn't take into account any potential savings from a proposed expansion of Medicaid to more low-income Virginians, as it has in the past. McAuliffe's repeated attempts to expand Medicaid have been met with fierce resistance by Republicans. He said he left out estimated savings this time because the program's future is uncertain, but wants the final budget to include language giving the governor authority to expand Medicaid if President-Elect Donald Trump and other Republican leaders don't do away with the federal funding.

— REPUBLICAN REACTION: Republican leaders said in a statement that they will "continue to hold the line against any form of Medicaid expansion." House Appropriations Committee Chairman Chris Jones and Senate Majority Leader Thomas Norment told reporters they like the internet sales tax idea, but don't know if one-time bonuses for state employees are the right approach to boosting their paychecks. Jones said that while some of McAuliffe's proposals "may sound great," lawmakers won't decide whether to keep or scrap them until they see how they fit in the overall budget. "All the pieces of the puzzle have to fit," Jones said.

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This story has been corrected to reflect that Amazon has been collecting sales taxes since 2013 when former Gov. Bob McDonnell struck a deal with the company.

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Follow Alanna Durkin Richer on Twitter at twitter.com/aedurkinricher. Her work can be found at http://bigstory.ap.org/journalist/alanna-durkin-richer .

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